Tuesday, December 2, 2014

Just over three decades ago, economist Bruce Yandle, then working for the Federal Trade Commission, published an article in the journal Regulation headlined “Bootleggers & Baptists: The Education of a Regulatory Economist,” which noted how groups presumably at odds with each other often collaborate, wittingly or unwittingly.

“Durable social regulation,” he said, “evolves when it is demanded by both of two distinctly different groups.” Those groups are the “Baptists,” a shorthand term for those who make a moral or ethical case for legislation or regulations, and the “bootleggers,” a term that applies to economic interests who benefit financially from legislation or regulations. (A synonym for “bootlegger” might be “rent-seeker.”)

“'Baptists' point to the moral high ground and give vital and vocal endorsement of laudable public benefits promised by a desired regulation,” wrote Yandle, while “'Bootleggers' are much less visible but no less vital. Bootleggers, who expect to profit from the very regulatory restrictions desired by Baptists … are simply in it for the money.”

What Yandle did was to apply public-choice economic theory to regulatory politics and, in the process, create a colorful concept that has been cited thousands of times since 1983 in attempts to explain how government makes rules.

'Aligned interests'
After the forum, I asked co-author Adam Smith a few questions about the book and his research.

Adam Smith speaks at the Cato Institute

Smith explained that the term “bootleggers and Baptists” originated during alcohol Prohibition in the 1920s, when “you had bootleggers and Baptists with aligned interests” even if they did not realize it.

Baptists, he explained, proclaimed “Down with legalized distribution of alcohol!” because they saw drinking as morally detrimental. Bootleggers, too, proclaimed “Down with legalized distribution of alcohol!” because Prohibition raised the price of illegal liquor and fed more profits to the bootleggers.

“It was a boon to the bootleggers,” Smith explained, “and the Baptists were kind of oblivious to that situation.”

Broadening the concept to include other kinds of regulations, Smith said, “what we see today in our modern political economy [are] many, many manifestations of the same kinds of strange bedfellows.”

More and more, he said, “we're seeing that those bedfellows are recognizing one another and coming together to form even more powerful would-be bootlegger/Baptist coalitions.”

There is also a relationship between “bootleggers and Baptists” and “crony capitalism,” when government grants preferential treatment to certain, well-connected businesses.

Smith said that, in the book “we call it 'bootlegger/Baptist' capitalism instead of crony capitalism.”

He added that “what I hope the book shows is that cronyism is more than just a bootlegger. That's the only thing that's usually recognized: There's just some special interest group.”

Yet, he explained, “a special interest group cannot move forward without moral cover, or at least can't get much out of the political domain without the Baptist” providing a beneficent reason for legislation, “and so we have to call attention the bad work Baptists are doing in creating opportunities for cronyism.”

Avenues for research
Both Smith and Yandle acknowledge that their book, while expanding upon the original thesis Yandle put forth in 1983, opens up new opportunities for further research by other economists and social scientists.

“There's obviously a lot of empirical work to be done,” Smith explained.

He pointed to “all these social regulations that people aren't looking at in terms of econometric work in the same way that they are [looking at] economic regulations, because we just don't think of it that way. We don't think of environmental policies and health-and-safety standards as giving money to anybody.”

Instead, he said, people “think of those as in the public interest. In other words, the Baptists have succeeded in convincing us of that fact but that's just not true. There are a lot of groups that benefit from that legislation and we need to put them under the microscope. We have to put those regulations under the microscope in the same way that we do economic regulations.”

Smith added that “this is a useful framework for recognizing groups” that may have self-serving (but hidden) economic interests in promoting new regulations.

“Never count a good bootlegger down,” he quipped. “A lot of times when we can't see the bootlegger, it doesn't mean they're not there. Seeing the Baptists can call attention to the fact that maybe there's a bootlegger standing in the shadows” during a debate about imposing new rules or restrictions on human action.Bootleggers & Baptists, by Adam Smith and Bruce Yandle, was published by the Cato Institute on September 7, 2014.